Working Papers
Optimal Reserve Management and Sovereign Debt
| Authors: | Laura Alfaro and Fabio Kanczuk |
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Abstract
Most models currently used to determine optimal foreign reserve holdings take the level of international debt as given. However, given the sovereign's willingness-to-pay incentive problems, reserve accumulation may reduce sustainable debt levels. In addition, assuming constant debt levels does not allow addressing one of the puzzles behind using reserves as a means to avoid the negative effects of crisis: why don't sovereign countries reduce their sovereign debt instead? To study the joint decision of holding sovereign debt and reserves, we construct a stochastic dynamic equilibrium model calibrated to a sample of emerging markets. We obtain that the reserve accumulation does not play a quantitative important role in this model. In fact, we find the optimal policy is not to hold reserves at all. This finding is robust to considering interest rate shocks, sudden stops, contingent reserves and reserve dependent output costs.
Download the paper (purchase from NBER required: $5): http://www.nber.org/papers/w13216
Modularity, Transactions, and the Boundaries of Firms: A Synthesis
| Author: | Carliss Y. Baldwin |
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Abstract
This paper constructs a unified theory of the location of transactions and the boundaries of firms. It proposes that systems of production can be viewed as networks of tasks. Transactions, defined as mutually agreed-upon transfers with compensation, are located within the task network and serve to separate one set of tasks from another. Placing a transaction in a particular location in turn requires work to define, count (or measure), and pay for the transacted objects. The costs of this work (labeled mundane transaction costs) are generally low at module boundaries and high in their interiors.
Several novel implications arise from this work. Among these: Modularizations create new module boundaries, hence new transaction locations where entry and competition can arise. Areas in the task network where transfers are dense and complex should not be modularized. Instead these areas should be located in transaction-free zones so that the costs of transacting do not overburden the system. The boundaries of transaction-free zones constitute breakpoints where firms and industries may split apart.
Download the paper: http://www.hbs.edu/research/pdf/08-013.pdf
Evidence on the Effects of Unverifiable Fair-Value Accounting
| Authors: | Karthik Ramanna and Ross L. Watts |
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Abstract
SFAS 142 requires firms to use fair-value estimates to determine goodwill impairments. Watts (2003) and Ramanna (2007) argue the unverifiable nature of those fair-value estimates gives firms discretion to manage impairments. We test this argument in a sample of firms with market indications of impairment (firms with book goodwill and market-to-book ratio below one). We find that the frequency of non-impairment in this sample is about 71%, and that non-impairment is increasing in financial characteristics predicted to be associated with greater unverifiable fair-value-based discretion. To investigate whether non-impairment is associated with managers producing on average better estimates of goodwill than the market, we test whether non-impairment increases in industries with higher average information asymmetries. We fail to find evidence consistent with this proposition.
Download the paper: http://www.hbs.edu/research/pdf/08-014.pdf
Publications
Location Strategies and Knowledge Spillovers
| Authors: | Juan Alcacer and Wilbur Chung |
|---|---|
| Periodical: | Management Science 53, no. 5 (May 2007): 760-776 |
Abstract
Given the importance of proximity for knowledge spillovers, we examine firms' location choices expecting differences in firms' strategies. Firms will locate to maximize their net spillovers as a function of locations' knowledge activity, their own capabilities, and competitors' anticipated actions. Using new entrants into the United States from 1985 to 1994, we find that firms favor locations with academic innovative activity. Other results highlight differences in firms' location strategies suggesting that firms consider not only gains from inward knowledge spillovers but also the possible cost of outward spillovers. While less technologically advanced firms favor locations with high levels of industrial innovative activity, technologically advanced firms choose only locations with high levels of academic activity and avoid locations with industrial activity to distance themselves from competitors.
Microfinance: Business, Profitability, and the Creation of Social Value
| Author: | Michael Chu |
|---|---|
| Publication: | Chap. 28 in Business Solutions for the Global Poor: Creating Social and Economic Value, edited by V. Kasturi Rangan, John A. Quelch, Gustavo Herrero, and Brooke Barton, 309-320. John Wiley & Sons, Inc., 2007 |
Abstract
After thirty years of development, commercial microfinance in the developing world—the provision of financial services to low income populations on a financially-sustainable basis—is an example with many lessons applicable to the study of business and the global poor. In recent years, there has been ample evidence, both in the literature and in capital markets, of the ability of leading microfinance institutions, particularly in Latin America and Asia, to generate superior economic returns. The issue is less clear in terms of the contribution successful microfinance makes to the reduction of global poverty. This paper seeks to address aspects of the creation of economic value and social value in microfinance, which the author believes contains insights applicable to all endeavors that seek to address the needs of the poor on a commercial basis.
Publisher's site:
Business Solutions for the Global Poor: Creating Social and Economic Value
Inventory Record Inaccuracy: An Empirical Analysis
| Authors: | Nicole DeHoratius and Ananth Raman |
|---|---|
| Periodical: | Management Science (forthcoming) |
Abstract
This study explores the systematic variation in inventory record inaccuracy (IRI) observed both within and across stores. Traditional inventory models, with a few exceptions, do not account for the existence of IRI and those that do treat record inaccuracy as random. Examining nearly 370,000 inventory records from 37 stores of one retailer, we found 65% to be inaccurate. That is, the recorded inventory quantity of an item fails to match the quantity found in the store. We identify factors associated with this inaccuracy that are stock keeping unit- (SKU) and store-specific. SKU-specific factors such as item cost, selling quantity, and method of distribution account for the observed variation in IRI within stores. Store-specific factors such as the density and variety of inventory observed at each store account for the variation in IRI across stores.
Dynamic Capabilities at IBM: Driving Strategy into Action
| Authors: | J. Bruce Harreld, Charles A. O'Reilly III, and Michael Tushman |
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| Periodical: | California Management Review 49, no. 4 (summer 2007) |
Abstract
In the past 15 years, the IBM Company has undergone a remarkable transformation from a struggling seller of hardware to a successful broad range solutions provider. Underlying this change is a story of foresighted strategy and disciplined execution—of connecting knowing to doing. In strategic terms, the IBM transformation illustrates the ideas behind dynamic capabilities, showing how the company has been able to sense changes in the marketplace and to seize these opportunities by reconfiguring existing assets and competencies. We review the literature on dynamic capabilities and, using IBM as a case example, show how their strategy process permits them both to explore new markets and technologies (e.g., life sciences, pervasive computing) as well as to exploit mature products and markets (e.g., mainframe computers, middleware).
Research and Relevance: Implications of Pasteur's Quadrant for Doctoral Programs and Faculty Development
| Authors: | Michael Tushman and Charles A. O'Reilly III |
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| Periodical: | Academy of Management Journal 50, no. 4 (August 2007): 769-774 |
Abstract
An examination of the role of research in business. The authors argue that scholars producing research in business fields are subject to stricter research standards due to the fact that they must produce work that is both rigorous and relevant and that this is why business research is so important. They suggest that researchers in disciplinary fields are not held to the same standards of relevance, requiring them to produce work based on real-world problems, that business academics are.
Cases & Course Materials
ABRY Fund V
Harvard Business School Case 208-027
In January 2006, Andrew Banks and Royce Yudkoff were considering raising a 5th fund for their media-focused private equity firm, ABRY Partners. ABRY had a strong track record that the co-founders attributed to their group's deep knowledge of the media industry and relationships with media lenders, coupled with a client-service approach to working with Limited Partners. For the fund, Banks and Yudkoff had intended to raise $1 billion and continue their existing strategy, but potential Limited Partners had indicated that they would be willing to commit up to $4 billion. Banks and Yudkoff had to decide whether or not to quadruple the capital in their latest fund.
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Andrea Jung: Empowering Avon Women (A)
Harvard Business School Case 408-035
In October 2005 Andrea Jung is coping with a 30% decline in Avon's stock price—the biggest test of her leadership since she became CEO in 2000.
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Andrea Jung: Empowering Avon Women (B)
Harvard Business School Supplement 408-036
Supplements the (A) case.
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The Battle of Union Square
Harvard Business School Case 208-036
Union Square Ventures, a private equity firm founded in 2003, filled a trademark infringement suit against Union Square Partners, another private equity firm founded in November 2006. Examines the possible impact that public litigation will have on the two firms. The impact of the litigation will be different for each firm because they are at dissimilar development stages and plan to employ distinct investment strategies. Also examines possible resolutions available to the management of the two funds.
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The CW: Launching a Television Network
Harvard Business School Case 507-050
In May 2006, Dawn Ostroff, president of entertainment of the newly formed CW Television Network, was faced with the task of choosing the final set of programs for the 2006 fall schedule, which she would present to advertisers at the annual "upfront" market in New York one week later. Only four months earlier, CBS Corp. and Time Warner Inc. had announced they would close their UPN and The WB networks, and run the CW as a joint venture. This unusual partnership, a first in the history of network television, had created a unique challenge for executives: an unprecedented number of existing shows would have to be cancelled. Ostroff and her colleagues—who had received thousands of letters, petitions, and gifts from desperate fans begging for the renewal of their favorite shows—had filled the empty slots. The final decision was the toughest: although four popular shows were still in contention—Everwood, One Tree Hill, 7th Heaven, and Veronica Mars—there was only room for three. Which show would be the last to be axed? And what would be the best time slots for the three last additions to the line-up? Allows for an in-depth examination of marketing issues in launching and operating a major broadcast television network, in particular making programming and scheduling decisions and managing relationships with audiences and advertisers. Provides unique insights into the launch of a network—a rare enterprise—and the associated marketing and branding campaign. Also contains rich television ratings data that can form the basis for a discussion on product portfolio management, in particular, continuation and pruning decisions (i.e., series renewals and cancellations). Finally, can be used to facilitate an assessment of challenges and opportunities in developing sustainable businesses in a rapidly changing media environment.
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E.ON Corporate Strategy
Harvard Business School Case 706-015
Examines the corporate strategy of German energy giant E.ON. The firm is vertically integrated, horizontally diversified across electricity and natural gas, and active in numerous countries in Europe as well as in the United States. Explores the costs and benefits of the company's choices about its vertical, horizontal, and geographical scope. Considers the risks of economic regulation, increasing concerns about environmental externalities from carbon emissions and nuclear power, and political and price risks in upstream markets for fossil fuels.
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HCA, Inc.
Harvard Business School Case 207-076
Focuses on the buyout of HCA by three private equity firms: Bain Capital, KKR, and Merrill Lynch Global Private Equity. It provides an opportunity to discuss a variety of issues related to leveraged buyouts including the process, the role of private equity, the incentives of the participants, the benefits to conflicting shareholders, and the valuation of the buyout.
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HCL Technologies (A) (Abridged)
Harvard Business School Case 408-004
When Vineet Nayar became president of HCL Technologies, a global IT services business, in April 2005, he knew the company needed drastic change. Since its founding as a hardware company in the 1970s, HCL had grown into an enterprise with $3.7 billion in revenues and a market capitalization of $5.1 billion. The company had 41,000 employees in 11 countries, but it was ill-prepared for the increasingly competitive market. With the shift from hardware to software and services, HCL had slipped behind its Indian competitors and multinational companies. Details the first phase of the transformation Nayar led in hopes of rejuvenating the industry pioneer. The tagline for this phase was "Employee First, Customer Second."
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HCL Technologies (B) (Abridged)
Harvard Business School Supplement 408-006
Supplements the (A) case.
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Information Technology and Clinical Operations at Beth Israel Deaconess Medical Center
Harvard Business School Case 607-150
Describes the history of clinical computing at Boston's Beth Israel Hospital and the development, since the 1996 merger to form the Beth Israel Deaconess Medical Center, of an information system designed to support the delivery of patient care. The hospitals' CIO, John Halamka, MD, has overseen the development of an information system that places physicians at its center. Describes the design and function of five major components of the system: the On-Line Medical Record, ePrescribing, Physician Order Entry, the Emergency Department "dashboard," and the Performance Manager. Provides students with an opportunity to identify key design principles for health care information systems, and to discuss the unique implementation challenges that the health care delivery setting raises for CIOs and CEOs.
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Microsoft Office 2007
Harvard Business School Case 607-015
A discussion of the history and processes behind the development of Microsoft's Office 12 software.
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The Mozilla Foundation: Launching Firefox 1.0 (A)
Harvard Business School Case 907-015
Explores the Mozilla Foundation's decisions leading up to the launch of Firefox 1.0, including its default browser, managing corporate partnerships, managing product development, and moving toward a revenue-based model. Mitchell Baker, president of the Mozilla Foundation, is faced with a crucial question in the impending hours of the Firefox 1.0 launch. Firefox, the reincarnation of the Netscape Mozilla browser, has had tremendous success despite Mozilla's loss of the Browser Wars to Internet Explorer years before. After AOL acquired Netscape, the Mozilla team had been unsure of their future, but they recently gained their independence with a new independent, nonprofit foundation. What partners should Firefox include as their default search partners? Should this relationship be commercial?
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The Mozilla Foundation: Launching Firefox 1.0 (B)
Harvard Business School Supplement 907-025
Supplements the (A) case.
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NatuRi Corporation
Harvard Business School Case 807-027
NatuRi Corporation was a start up, founded in 2005, aiming to manufacture a cholesterol-lowering drug made from the byproducts of rice bran oil production. With operations split between Chennai, India and Boston, Massachusetts, NatuRi faced several challenges, including securing funding for the organization. NatuRi had captured the attention of at least four potential investors willing to offer an investment. Its managers were challenged to weigh their options and to determine which of the four potential investors currently interested in their venture would be most appropriate for NatuRi's future growth. In addition, the founders had only a short period of time to decide whether or not to accept a Seed and Series A term sheet from a well known venture capital firm. Poses the question of how the company's financing should be structured and how much equity the founders should relinquish in exchange for the start-up capital.
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Rebuilding the New Orleans Public Schools: Turning the Tide? (Abridged)
Harvard Business School Case 808-045
After Hurricane Katrina, the New Orleans Public School System is faced with rebuilding from the ground up. The challenge is enormous, as is the opportunity to remake the lowest performing public school system in Louisiana and one of the lowest performing in the nation. A variety of public officials, politicians, and entrepreneurs are engaged in the rebuilding process. Also, explores the tensions that emerge as the community faces both the rebuilding task and conflicting visions of what the future should look like.
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Retail Shopping in 2007: The Net versus the Mall
Harvard Business School Note 707-566
Provides an overview of the retail sector within the United States as online shopping captures an increased percentage of consumer spending. The role of enabling technologies and applications, including comparison shopping sites and recommendation systems, are covered. Additionally, the strategies, specifically the evolution of multi-channeling retail, are discussed.
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TA Energy (Turkey): A Bundle of International Partnerships
Harvard Business School Case 807-175
Stimulates discussion of entrepreneurship in emerging economies, especially for entrepreneurs returning to their home countries to start businesses with global technologies and partners. Focuses on the partnership tensions between global firms and local family-dominated conglomerates. Addresses new venture financing in an asset-intensive business through the assembly of strategic contrasts. More broadly, highlights the opportunities and challenges for returnee entrepreneurs.
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Turnaround at the Veterans Health Administration (A)
Harvard Business School Case 608-061
Investigates the challenges that Dr. Kenneth W. Kizer confronted in seeking to create organizational change at the largest integrated health care system in North America, the Veterans Health Administration (VHA). Kizer was appointed as the Under Secretary of Health, to oversee the VHA, in 1994. Upon Kizer's arrival, it was immediately apparent that the management style that pervaded the VHA was ineffective and out of date. At the same time, the VHA faced inefficient health care delivery systems coupled with a steadily increasing number of patients. Kizer started to make plans to change the VHA into a modern, responsive, efficient, and effective health care organization. However, success in executing on his plans would require challenging a bureaucratic system with a long history. Documents progress, including organizational efficiencies gained that include consolidation of health care facilities, and illuminates leadership actions that facilitate this progress. Clearly, many challenges still lie ahead. Near the end of the case, Dr. Kizer awaits news from Congress on his reappointment for another four-year term.
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Turnaround at the Veterans Health Administration (B)
Harvard Business School Supplement 608-062
Supplements the (A) case.
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The U.S. Retirement Savings Market and the Pension Protection Act of 2006
Harvard Business School Note 207-130
Provides an overview of the evolution of the private retirement savings market in the U.S. since 1990; the management and administration of defined-contribution (DC) plans; the existing evidence about the investment and savings decisions of participants in DC plans; and the Pension Protection Act of 2006.
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